One of South Korea’s policy banks, Export-Import Bank of Korea (Kexim), manifested its commitment to the euro bond market as it priced on May 22 a new five-year benchmark amounting to 750 million euros (US$843 million).

The Reg S deal was priced at 99.402% with a coupon of 0.50%. It has been more than a year since Kexim last accessed the euro bond market when it printed in March 2016 a similar 750-million-euro bond offering for three years.

“The euro bond market is an important funding source for Kexim and we are committed to supplying consistent liquidity, as observed from continued funding activities in the European market in the past, including numerous benchmark issuances in euro, Swiss franc and pound sterling,” Kexim treasurer Hee-sung Yoon tells The Asset.

“The euro bond market enables us to diversify our funding sources, and we also sometimes have a natural need for euros as a couple of euro-denominated projects for export credits and overseas investments are currently under development. In certain situations, we also utilize the favourable basis swap environment to fund competitively.”

In launching its latest fundraising exercise, Kexim overcame the geo-political tension in the Korean peninsula as North Korea was conducting missile tests. Kexim also saw favourable market conditions for a euro issuance post the French election with political uncertainties relieved from the Eurozone and the investment grade spreads being tightened.

“We believed it was the right time to supply fresh liquidity to the euro market and set up a new five-year benchmark, which would allow the other Korean issuers to follow as we have always done so far,” adds Yoon. “The five-year euro-US dollar basis swap also improved remarkably since 2016, so the deal was competitive compared with the US dollar in after-swap terms.”

In executing the transaction, Kexim, on the week of May 15, embarked on a pan-European investor roadshow. Yoon notes the European investors were highly interested as it was the first Korean investor roadshow since Kexim visited the euro market back in March 2016. ‘Enthusiastic responses from the European investor community proved the popularity of the Kexim euro bond and Korean euro credit’s rarity value in recent years,” he points out.

The roadshow also provided the Kexim team the opportunity to guide the European investors on the new Korean government’s policy direction and the North Korean issues.

While there was an additional North Korean missile test on May 21, Kexim and the deal arrangers figured out that the market was stable on May 22 to announce the transaction. “The market was not busy and without any major competing supplies, and we were also assured the global investors did not carry any serious concerns on the Korean situation. Eventually, we found the window to launch the deal,” says Yoon.

In pricing the deal, Kexim derived fair value for the new five-year bond by looking at its own outstanding euro paper and adding the average curve extension. To that level, it added an initial new issue premium to get to an initial price guidance. This was devised in such a way that Kexim was able to bring in all the necessary demand and grow the initial order book.

On the announcement date on May 22, Kexim decided to open the books during European morning time to grab the European investors’ attention early on and simultaneously cover interests from the Asian investors as well. In addition, it had comfort with both the chosen tenor and the envisaged pricing as it found investors’ deep interests from the pan-European roadshow conducted in the previous week.

“After seeing that the demand was growing at a steady pace, we pushed the pricing down to leave minimal new issue premium on the table,” says Yoon. “Although we did not get a huge oversubscription, the quality of orders was high and almost all orders were real demands. The share of the European investors was over 70% and I am satisfied with the demand the deal has generated.”

The offering garnered a total demand of 830 million euros from 65 accounts with 19% of the bond distributed in Germany, 14% in France, 9% in the UK, 9% in Benelux, 8% in Switzerland, 11% in other European countries, and 30% in Asia and others. By type of investors, central banks and official institutions accounted for 36%, asset managers 31%, bank treasuries and other banks 26%, insurance companies and pension funds 6%, and other investors 1%.

On the current state of the bond market, Yoon says it is in decent shape, with some of the major uncertainties removed to a certain extent globally for the time being. Also, investors have ample liquidity to put to work. This translates into limited new issue premium that needs to be paid.

He adds: “Having said that, we have to keep in mind that the political uncertainties around the Trump administration still persist and the US Fed rate hikes are on the table throughout this year. So we will take extra caution to capture the right window for execution to avoid any potential market risk and volatilities going forward.”

BNP Paribas, Goldman Sachs, HSBC, ING Wholesale Banking and Societe Generale CIB acted as the joint bookrunners for the transaction.